Options to sell / liquidate residential portfolio

[Michael Ashley]

After many years of residential investing, I'm looking to 1031 exchange my residential portfolio into 1-3 NNN/triple net commercial properties. (finally, time to retire)

I am trying to identify and rank my selling options to achieve the following:

1. Minimizing capital gains/recapture taxes by getting as many properties into a 1031 exchange as possible. (Taxes would be $200k+)
2. Minimizing commissions to whatever degree possible: at 6%, fees would be $140k+.
3. Getting maximum selling value
4. Not disrupting my tenants and current cash flow

Below, I have ranked (from best to worst) what I believe are my options for selling. Am I missing any options? Would you rank them differently? If so, why.

1. (Best) Listing all the properties on BiggerPockets: Pro's - No broker commissions, good chance to sell all properties together
2. Listing properties on Zillow (FSBO): Pro's - lower commissions, potential to sell all properties together
3. Listing properties with Flat fee Broker on MLS: Pro's - higher price, benefits of MLS
4. List all properties with commercial broker (Likely paying 6%): Pro's - benefits of MLS and access to commercial broker's network
5. (Worst) List all properties with residential broker (Likely paying 6%):

Portfolio characteristics

• 16 Properties / 17 Units / Total value about $2.4 Million 
• 9 houses in the same class B-/C+ neighborhood (all renting above 1% rule) (
• 1 luxury type Condo in class A neighborhood (not renting anywhere close to 1% rule)
• 2 houses in different class B+ neighborhoods (1 renting close to 1% rule, 1 not close)
• 1 duplex in class A neighborhood [best public school in Columbus] (not renting at 1% rule, but probably could if marketed well)
• 3 houses in same class A neighborhood (not getting 1% rule, and likely couldn't)

[Wayne Brooks]

Well, selling Without getting them on mls will mean 80-90% of the potential buyers will never know about your properties......resulting in 1) lower sale prices 2) longer time to sell at near market value.  Not many buyers from BP will be looking to pay “retail”.

Of course, you’ll need to find a replacement property that you can hopefully contract for a longer than typical closing in order to roll a dozen or so properties into it.

@foster 

@Dave Foster May have some procedural suggestions.

[John Thedford]

Doing a 1031 with multiple residential properties is tough unless you are willing to give a decent price reduction. It might be as cost effective to sell them at a discount and pocket the cash until better opportunities present themselves. 

[Adrian Stamer]

Your portfolio appears to pretty much be all residential SFH which would be best targeted at end user owner occupants. Trying to sell this just to investors will cost you much more then any of the other costs

[Robert Ellis]

Originally posted by @Michael Ashley:

After many years of residential investing, I'm looking to 1031 exchange my residential portfolio into 1-3 NNN/triple net commercial properties. (finally, time to retire)

I am trying to identify and rank my selling options to achieve the following:

1. Minimizing capital gains/recapture taxes by getting as many properties into a 1031 exchange as possible. (Taxes would be $200k+)
2. Minimizing commissions to whatever degree possible: at 6%, fees would be $140k+.
3. Getting maximum selling value
4. Not disrupting my tenants and current cash flow

Below, I have ranked (from best to worst) what I believe are my options for selling. Am I missing any options? Would you rank them differently? If so, why.

1. (Best) Listing all the properties on BiggerPockets: Pro's - No broker commissions, good chance to sell all properties together
2. Listing properties on Zillow (FSBO): Pro's - lower commissions, potential to sell all properties together
3. Listing properties with Flat fee Broker on MLS: Pro's - higher price, benefits of MLS
4. List all properties with commercial broker (Likely paying 6%): Pro's - benefits of MLS and access to commercial broker's network
5. (Worst) List all properties with residential broker (Likely paying 6%):

Portfolio characteristics

• 16 Properties / 17 Units / Total value about $2.4 Million 
• 9 houses in the same class B-/C+ neighborhood (all renting above 1% rule) (
• 1 luxury type Condo in class A neighborhood (not renting anywhere close to 1% rule)
• 2 houses in different class B+ neighborhoods (1 renting close to 1% rule, 1 not close)
• 1 duplex in class A neighborhood [best public school in Columbus] (not renting at 1% rule, but probably could if marketed well)
• 3 houses in same class A neighborhood (not getting 1% rule, and likely couldn't)

 Just looking at your portfolio it will be very difficult to sell these as a package in columbus . Especially given a lot of yours are made up of single family homes. If you do go the route of a package sale you need to work with an auction house. That's the only effective way i've seen them sold. other than that, you need to list them individually and it's going to be difficult to line them all up for sale at the same time, so you will be looking at multiple 1031 exchanges. good luck. another idea is to locate the property that you want first and then dump everything you have. If it was me i'd have the property already found and under contract. 

[Ray Johnson]

@Michael Ashley Your two scenarios include language like "renting above 1% rule" or "close to 1% rule", you're not clear if the properties are operating at these numbers due to your purchase positioning or if this is what they will operate at on todays market sales projections? There's a big difference for you and an investor, This will determine if someone buying today will be coming from an investor pool or an end-user Owner Occupant pool.

1) Possible scenarios not listed is you may accidently come across someone trying to place 1031 money last minute and will do the deal.

2) You have two distinct groups of property, 7 of them are Class A/B+, and 9 of them are Class B-/C, maybe you sell the B-/C properties to the investor community in bulk which would be easier if you didn't have the Class A/B- properties that won't make any investor any money, just sell the higher class 5-7 properties to OO's.

[Dave Foster]

@Michael Ashley, congrats on the long awaited exit!!!  You've correctly identified the main options/issues.  I can add a couple of things.

1. Don't forget that if you want to bunch sales you can use contingencies and delayed closings even if you're selling off as ones and twos.  Yes it's still harder on the buy side in a sellers market.  But don't forget you're also a seller and can use them to to give yourself the opportunity to bunch closings and cluster properties for your 1031.

2. There's also the tool of the reverse exchange available to you. If you find the right NNN replacement and want to bunch several sales into it.

3, You may need to make this a two step process.  And that's not the worst.  Pick the way you want to sell the properties and cluster some of them into a good replacement that will only absorb those sales.  

4,  The 45 day list can also be used to place some fallback fractional commercial opportunities that move a little more slowly.  As each of your exchanges approached it's 45 day period you can decide whether to leave it in the bunch or spin it off into something smaller.  A lot of these fractional TICs and DSTs can accept 1031 money with $100k - $150K minimums so they're not bank breakers.  And with returns on some approaching 7-8% still with national corporate tenants they can a great fall back (or first line strategy).

[Mary M.]

Personally i would contact a commercial agent and see what they think. 

I also would be thinking to sell on the open market to home owners. You would get top dollar which would help pay the commission and taxes.  

I honestly dont see you getting top dollar by marketing to the investor community. 

[BJ Everson]

Selling Option:

- Provide owner financing on the whole portfolio. That way you sell all together and maintain income (time to retire comment you made). 

1031 Alternatives:

- This wont go with my selling option, but DM me if you would like to talk about Opportunity Zones and how that saves on your would be capital gains as well as re-invest your proceeds. 

[Sherrie Bower]

Michael- This has nothing to do with your question.  But, when you are ready to sell, would you mind sending me a list of your properties?  We live in Delaware, OH and are looking to buy our first deal or two. Maybe we could help each other.

[Vincent Garman]

I have a guy buying in Columbus. Reach out to me and I can connect y'all. 

[Michael Ashley]

FYI. I just listed the 9 houses in the B- neighborhood in BiggerPockets Marketplace. Listing price $999,000 with rents around $8100 per month. I'm going to see how these listings go before I sell others. Note these are not on MLS yet. I'm going to try 30-45 days off MLS first.

[Brandon Sturgill]

@Michael Ashley Best of luck on this...there are lots of moving parts in these types of transactions. If you change your mind and want someone in your corner, feel free to connect. Likewise, if you want to support your listings with valuations we can talk.

Take care